As we get closer to the next #fomc meeting on November 1st, investors continue to think that rates will go lower from where they are today only to bottom around 2026 and then go back to levels similar to the ones we have today. The script is similar for US and Europe. One interpretation of those expectations is that both economies may enter into a recession forcing the Fed and the ECB to act, reducing rates, only to realize inflation is back, lifting rates again to try to manage price increases. But if that’s the scenario for short term rates, what happens to both sovereign curves? It should push long rates up in both cases, not only because of deficits but also because of inflation. And if that’s the scenario, what happens to valuations of other assets such as equities?
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Source: Apollo
